Every business has its metrics which helps organizations to measure their performance and help them to improve their revenue and profits. Hotel metrics are an important component which makes it possible to keep track of the revenue stream and understand the performance of a hotel.
Each of the most used revenue management KPI’s has their own value, although they are more useful when viewed in context, alongside one another. By using key performance indicators, hotel management can get a clearer idea about the performance of their business and make informed, data-driven adjustments to pricing and strategy.
Still, no matter which metric is used, the goal stays the same: to increase revenue and profits.
In this two-part article series, I will explain the most critical metrics that companies in the Hotel Industry should track. It is important to understand tools and track their viability as well as identify where we can make the easiest and most impactful improvements to improve our business results dramatically.
I will exclude Food and Beverage, Meeting and other revenue areas deliberately as I will cover their key metrics separately in another article.
First the basics;
1- Total Available Rooms
Total Available Rooms = Total number of rooms – Number of rooms out of order/not in service/out of inventory
Total available rooms represent the number of rooms available multiplied by the number of days in the reported period.
Alone it might not mean too much, however, it provides necessary information which we use for other inventory related calculations such as RevPAR, GOPPAR.
2- Average Daily Rate (ADR) or Average Room Rate (ARR)
ADR = Rooms Revenue / Paid Rooms Occupied
Hotel ADR measures the average price paid per room. This metric basically assesses the total guest room revenue for a specific period versus the total amount of room revenue paid and occupied hotel rooms within the same time frame.
The ADR is a key measure to identify property’s financial performance, as well as to compare the hotel’s performance to its competitors.
3- Average Occupancy Rate (Occ%)
Occupancy % = Paid Rooms Occupied / Rooms Available
Occupancy % = Revenue per Available Room / ADR
Occupancy is a percentage of the available rooms occupied for a specific period. It is calculated as total paid rooms occupied divided by total available rooms.
Usually, the higher the occupancy the better because the company is earning more revenue than companies with low occupancy. However, this may not always hold true if the company cuts prices to boost its occupancy. The rate is also key to the operational side of the business to ensure proper staffing and inventory.
4- Average Length of Stay (ALOS)
ALOS = Total Occupied Rooms / Total Number of Bookings
The ALOS metrics makes it easy to identify the length of stay of guests at your hotel. It is vital to implement a length of stay requirement in revenue management. Once implemented effectively, length of stay requirements can be such a successful tactic that entire revenue management strategies are created around it. There are several ways to implement this strategy for any rooms sold through a certain channel such as Expedia or for some certain promotional packages for effective marketing or during a certain period when we know there is a large event in town.
This is calculated by dividing the occupied rooms by a number of bookings. It is said that a higher number means an improved profit as less labour is required. On the other hand, a lower ALOS results in reduced profit. The concept is that if a guest stays for a long period of time then it requires less labour. Whereas if several guests book rooms for one-nights for the same period of time then it requires more labour. It also helps you identify the type of customer you have; singles, families, couples etc.
Once you establish available rooms, occupancy, Average room rate and the average length of stay information you will be able to use more detailed metrics which will help you to understand the results of your revenue management strategy effectively and drive your hotel’s growth and profitability further. Some of the key revenue management KPIs are;
5- Revenue Per Available Room (RevPAR)
RevPAR = Total Room Revenue / Total Rooms Available
RevPAR = Average Daily Rate x Occupancy Rate
The most commonly used hotel performance metric today, the RevPAR provides average daily room revenue generated per available room. RevPAR represents the success the hotel is having at filling its rooms. Increasing RevPAR means either that rates or Occupancy Rate are rising or both.
While the metric effectively combines occupancy and ADR data to produce a complete picture of a hotel’s performance, it does have its drawbacks. RevPAR doesn’t account for the costs involved in preparing rooms for occupancy (CPOR) or the additional income generated by other revenue centres such as the restaurant, bar, spa and so on. RevPAR can vary widely across markets and is best thought of as a time-based snapshot of the hotel’s performance.
6- Revenue Per Occupied Room (RevPOR)
RevPOR = Total Revenue Generated by Occupied Rooms / Total Number of Occupied Rooms
It gives a different view compared to RevPAR, the calculation is similar to ADR as it considers revenue per occupied room however instead of just room revenues it calculates all revenue streams generated by rooms that are actually in use. So, revenues such room service and laundry service would be included.
7- Total Revenue Per Available Room (TRevPAR)
TRevPAR = Total Revenue / Total Nr of Rooms
TRevPAR offers you an important distinction to RevPAR or NRevPAR. It encompasses all revenue generated by each room across all hotel revenue sources. These include food and drinks, leisure, events and any other guest expenditure. This metric is the sum total of net revenues from all operating departments plus rentals and other income per available room for the period divided by the total available rooms during the period.
But, like RevPAR, TRevPAR fails to account for cost factors and occupancy rate. Similarly, while TRevPAR is a great measurement for accountants, hotel owners and general managers seeking a high-level view of profitability, TRevPAR is less beneficial for revenue managers because it does not enable them to isolate revenue streams. Therefore, TRevPAR is especially useful for hotels where rooms are not necessarily the largest component of the business.
8- Net Revenue Per Available Room (NRevPAR)
NRevPAR = (Room Revenue - Distribution Costs) / Number of Available Rooms
NRevPAR is similar to another useful KPI: Revenue Per Available Room (RevPAR), but it offers an important difference. NRevPAR includes net revenues in its calculations, so when using, you’re getting an insight into distribution costs, transaction fees and travel agency commissions too. It can present a more accurate picture of the actual revenue received from the rooms sold.
This inclusion gives you a more transparent measurement of revenue management performance. It will assist enormously in your strategic planning. The only caveat is that it can be a challenge to gather and calculate the various costs that we mentioned above. But it is worth the extra effort.
This concludes the first of two-part article on “18 Methods for Measuring and Improving Hotel Performance” series.
But, like RevPAR, TrevPAR fails to account for cost factors and occupancy rate. Similarly, while TrevPAR is a great measurement for accountants, hotel owners and general managers seeking a high-level view of profitability, TRevPAR is less beneficial for revenue managers because it does not enable them to isolate revenue streams. Therefore, TRevPAR is especially useful for hotels where rooms are not necessarily the largest component of the business.
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